Metric analysis

Antitrust regulators ponder revamping key merger review metric

The long-standing metric antitrust regulators used to support their lawsuits to block mergers is heading for an overhaul as they look for more modern ways to limit anticompetitive impacts.

The Federal Trade Commission and Department of Justice are asking the public if they should make any changes to their analysis of “market definition,” a fact-based endeavor that requires defining a particular product or consumer market in which the proposed agreement may lead to competitive dominance.

When suing to block mergers, agencies must convince a court that the deal would cause price increases or other types of harm to that defined market.

But in considering changes to this metric, agencies could consider moving away from trying to capture what might happen in the future, and instead deepening their analysis of direct evidence of harm, such as evidence that companies were previously in competition in a particular region, the lawyers said.

“They’re saying ‘we’re not necessarily going to rely on this hypothetical monopoly test. We’re going to look to a qualitative rather than a quantitative basis,” said Jack Sidorov, senior counsel at Lowenstein Sandler LLP.

Relying more on direct evidence of harm to expand how agencies define affected markets could lead to more merger proposals being sued and other types of enforcement, say lawyers.

“I imagine the reason agencies bring up market definition as part of this review process is because they want to make it easier to challenge,” said Craig Minerva, attorney at Axinn, Veltrop & Harkrider LLP.

Increased monitoring

The new guidelines are the latest action taken by the FTC and DOJ, under the Biden administration, to strengthen their oversight of large mergers and acquisitions. President Joe Biden called on agencies to review merger guidelines in July 2021 Executive Decree.

“In a dynamic, multi-dimensional economy, the static formalism of market definition may not always be the most reliable tool for assessing the potential damages of mergers,” said DOJ Antitrust Chief Jonathan Kanter. on January 18 at a joint event with FTC Chairwoman Lina Khan. announce their requests for information.

“We hope to learn more through this process about additional tools that rely on direct sources of evidence such as adding market power and direct competition between merging parties that may be more reliable in some situations than market definition,” Kanter said.

The definition of the impacted market has underpinned decades of merger enforcement by antitrust regulators, lawyers said. Once the market has been defined, the agencies assert a theory of harm or allege anticipated anti-competitive effects in that market.

But the agencies have been less successful in convincing a court to uphold their merger challenges, practitioners said.

“There’s been a hunch that the overreliance on market definition is one of the reasons why merger policy hasn’t been very effective,” said Herbert Hovenkamp, ​​professor of antitrust law at the University of Pennsylvania.

SSNIP TEST

One of the components used by regulators to arrive at market definition – the small but significant non-transitory price increase test (SSNIP) – could be overhauled, the lawyers said. The SSNIP test analyzes a subset of products to determine if a transaction will cause a “small but significant” increase in the price of those products.

In their January 18 request for information, the FTC and DOJ asked whether the focus on the SSNIP test to determine market definition obscures “the different types of harms in addition to price effects that may arise.” .

If agencies want to focus on non-price damages in their merger challenges, the SSNIP is the most direct example of a test that could come under scrutiny, Sidorov said.

“SSNIP analysis may not be readily applicable in cases such as technology markets, where the effect on competition is unrelated to price – its quality, innovation and privacy,” he said. declared.

US District Judge James Boasberg’s rejection last year of the FTC’s attempt to reverse Facebook Inc.’s acquisition of Instagram and WhatsApp is an example of why SSNIP may be insufficient in the current economy, Sidorov said.

The agency’s alleged damages generated by the agreements are not directly related to consumer prices. And the FTC, in its market definition, did not present evidence that Facebook controlled more than 60% of the “personal social networking services” market, Boasberg said.

The agency has since filed an amended lawsuit, which survived Facebook’s motion to dismiss earlier this month.

Agencies seem to want a mode of analysis that is analytically rigorous, but one that will help them be more successful in blocking mergers, said Eric Barstad, a lawyer at Robins Kaplan LLP.

“I think agencies are trying to downplay the centrality and necessity of formal market definition in the merger enforcement process,” he said.